Managing Debt

The Mortgage Crisis

Older Americans are feeling the pain

Nancy K. won a personal battle with cancer but lost her job, home and car in the process.

“I survived cancer [but] now I have no more job and cannot afford health insurance. I lost everything,” Nancy, 56, of Santa Clara, Calif., told AARP. “My husband and I are living on a day-to-day basis not knowing where our next meal will come from. We are on the verge of living in the streets.”

Nancy joined millions of Americans who lost their homes to foreclosure last year. According to RealtyTrac, an industry group, foreclosure filings skyrocketed by 81 percent in 2008 over the previous year and by 225 percent over 2006.

While 2008 shattered records for foreclosure filings, some economists say 2009 could look even worse. Escalating job losses around the country, on top of plummeting home values and growing inventory, could push the economy into a deeper recession.

“The deteriorating labor market will play a big role in [the rise in] foreclosures,” says Orawin Velz, associate vice president of economic forecasting for the Mortgage Bankers Association. She expects the unemployment rate to increase through early 2010.

“We foresee an increase in foreclosures if effective steps are not taken to change the course,” says Barry Zigas, director of housing policy for the Consumer Federation of America. “The steps the government has taken so far have not done the trick; they have not been effective at slowing things down in any appreciable amount.”

Mortgage modifications, designed to lower monthly payments and keep troubled borrowers in their homes, may not provide a quick fix to the foreclosure mess. A recent study found that 55 percent of homeowners who received loan modifications had missed at least one payment six months after a lender modified their loan, according to the federal Office of the Comptroller of the Currency (OCC). More than one-third were at least 60 days delinquent after six months of getting a modification.

Bryan Hubbard, a spokesman for the OCC, says the high delinquency rates could indicate that the loan modifications weren’t deep enough to make a difference. He also says the worsening economy may have made it harder for homeowners to afford a mortgage. Further, he says, many people bought homes they really couldn’t afford in the first place, so no amount of mortgage reduction would help.

“This data suggests that of the loan modifications we do, we need to do them more smartly in a sustainable fashion,” Hubbard says.

Older adults are among the many Americans continuing to struggle with unaffordable mortgages. More than one-quarter of those who were delinquent in their mortgages or faced foreclosure in the last six months of 2007—nearly 700,000 people—were age 50 or older, according to a 2008 analysis by AARP.

The analysis also pointed out the extraordinary hardships older adults face when they lose a home.

“The impact is often more significant for older homeowners simply because they have less time and ability to recover from the financial losses associated with a foreclosure,” says George Gaberlavage, director of consumer and state affairs for AARP’s Public Policy Institute.

Florence Chamberlain knows that all too well. The retired nurse bought a $125,000 condominium in Tamarac, Fla., less than a year ago and spent about $30,000 on upgrades. Her home is now worth less than $80,000. Chamberlain says that she actually owes more than the home is worth; she is considering filing for bankruptcy.

“I need a job,” she says. “Who wants a 68-year-old nurse? As it is now, I probably have to file bankruptcy and lose my home to foreclosure.”